Canadian Credit Card, Coors tap markets; law impacts covered bonds; Precision Drilling lower

By Cristal Cody

Prospect News, April 26 - An asset-backed deal brought by National Bank of Canada's credit card trust kept up some pricing action in the Canadian markets on Thursday, while Molson Coors Brewing Co. tapped the U.S. market for $1.9 billion of senior notes (Baa2/BBB-/BBB) in three tranches.

"Pretty quiet, which seems to be the case now for a number of weeks," a syndicate source in Canada said on Thursday. "Secondary volume is picking up. Yesterday it was more active than we had seen in previous weeks, so hopefully accounts are coming out of hibernation."

Primary activity on Friday is unlikely but not out of the question with two potential corporate offerings from BAA Airports Ltd. and Korea Gas Corp. and an expected provincial deal from Ontario, sources said.

"Today was an OK market, equities are up and the tone was fine," a source said. "They could've launched today, so why wait till tomorrow? We don't get a lot of issuance on Friday but there's no economic releases and it's not a long weekend."

Bonds were stronger on the day. The Markit CDX Series 18 North American investment-grade index firmed 2 basis points to a spread of 96 bps.

Government bonds traded better on the short end of the curve. Canada's two-year note yield fell 3 bps to 1.38%. The 10-year note yield dropped 2 bps to 2.06%. The yield on the 30-year bond was unchanged at 2.62%.

In Canada's high-yield secondary market, Precision Drilling Corp.'s outstanding senior notes (Ba1/BB+) traded lower on Thursday after the company reported earnings that missed analyst forecasts.

Precision Drilling reported that revenue grew 22% to C$640 million in the first quarter. Earnings rose to C$111 million, or 39 Canadian cents a share, from C$66 million, or 23 Canadian cents a share, in the same period a year ago.

Covered bond changes

Also in the bond markets on Thursday, Canada announced it will prohibit banks from using insured mortgages to back domestic covered bonds under a budget bill announced by finance minister Jim Flaherty.

The legislation will require Canada Mortgage & Housing Corp. to establish and maintain a registry for covered bonds. Most Canadian banks have sold bonds in U.S.-dollar denominated deals outside Canada.

"To a certain extent, it will affect all banks, though RBC is the only Canadian bank to issue a domestic covered bond," a bank syndicate source said. "The rest of us have issued in [U.S.] dollars. None of the other banks have issued in C-dollars. It will have an impact, we just don't know what it is yet."

Ratings agency DBRS said in a statement on Thursday that changes in the framework were anticipated. As a result, while Canadian banks have made a significant number of covered bond sales since the beginning of the year, almost all have been sold through U.S.-dollar denominated offerings.

As of the end of March, C$63 billion of covered bonds were outstanding, compared to C$50 billion in December "with Bank of Nova Scotia being the most active, accounting for C$5.5 billion of the change," DBRS said.

"Given that several of the banks still have insured mortgages, DBRS believes some of the Canadian banks will continue to fund using these instruments before the bill receives royal assent."

Canadian Credit's ABS deal

Canadian Credit Card Trust sold C$330 million of 2.306% three-year credit card receivables-backed notes (DBRS: AAA) at par on Thursday, a bond source said.

The series 2012-1 notes due April 24, 2015 priced at a spread of 82.3 basis points over the Canadian government benchmark.

National Bank Financial Inc. was the bookrunner.

The accounts in the trust are revolving consumer MasterCard receivables originated by National Bank of Canada.

Molson Coors prices $1.9 billion

Molson Coors Brewing sold $1.9 billion of senior notes (Baa2/BBB-/BBB) in three maturities late on Thursday in the U.S. market, a source said.

A source away from the trade said: "The Molson Coors deal is going very well, so that's probably a good barometer for the market."

The $300 million of 2% five-year notes priced at a spread of Treasuries plus 125 basis points. The notes sold at the tight end of talk for a spread in the 130 bps area, the source said.

A second tranche of $500 million in 3.5% 10-year paper sold at a spread of 160 bps over Treasuries. The tranche was priced at the low end of guidance for a spread in the 165 bps area.

Finally, there was $1.1 billion of 5% 30-year bonds sold at a spread of Treasuries plus 190 bps. The bonds were also priced at the tight end of guidance set at the 195 bps area.

Deutsche Bank Securities Inc. and Morgan Stanley & Co. LLC were active bookrunners. Passives were Bank of America Merrill Lynch, Barclays Capital Inc., J.P. Morgan Securities LLC, UBS Securities LLC and Wells Fargo Securities LLC.

Proceeds are being used to help fund the $3.54 billion acquisition of StarBev Holdings from StarBev LP.

The notes have a mandatory call feature at 101 if the acquisition is not done by November 2.

In the secondary market, the notes due 2017 traded 5 bps tighter at 120 bps bid, 116 bps offered. The tranche of notes due 2022 were quoted 8 bps better at 152 bps bid, 148 bps offered.

The long bonds firmed 9 bps to 181 bps bid, 177 bps offered.

Molson Coors is a beer brewer based in Denver and Montreal.

Precision Drilling down

In the secondary market, Precision Drilling's 6.5% senior notes due 2019 traded at 103.00 bid on Thursday, down from 104.75 bid last month, a source said.

Precision Drilling sold the notes on March 10, 2011 at par.

The company's 6.5% senior notes due 2021 were seen finishing the day at 104 bid. Precision Drilling sold $400 million of the notes at par on July 26.

Also in trading, Precision Drilling's 6.625% notes due 2020 traded at 105 bid on Thursday. The issue priced in a $650 million offering at par on Nov. 10, 2010.

Precision is a Calgary, Alta.-based equipment and services provider for the oil and gas industry.

Andrea Heisinger contributed to this review

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